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Bankruptcy

Federal bankruptcy laws have changed for the first time in more than a quarter century. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has enacted many new and more restrictive laws that are much less debtor friendly. Considerable litigation is sure to arise over the next few years as attorneys resolve conflicting portions of the 2005 Act.

Important features of the Bankruptcy Reform Act of 2005 

Chapter 7 Bankruptcy is a 90-day process that discharges all of a person’s debt. To qualify for Chapter 7, you must pass what is know as the “means test.”  If it is determined that you or your family is over the applicable median income for your household size and can repay 25% or more of your debt over the life of a Chapter 13 payment plan, you will typically not be eligible to file a Chapter 7. Business bankruptcy does not require the means test analysis.

Chapter 13 Bankruptcy is a 3- to 5-year repayment plan in which you make a monthly imbursement to the Bankruptcy Trustee, who then distributes the funds to your creditors. As a debtor, you are required to pay 100% of your disposable income over the life of the bankruptcy plan. At the end of the payment plan, a discharge order enters as in Chapter 7 bankruptcy, liquidating any remaining debt. 

All individuals seeking Chapter 7 or Chapter 13 bankruptcy protection must undergo credit counseling within the 180-day period preceding the filing of the petition.